Gold Rises as Fed's Powell Signals Optimism Amid Central Bank Hoarding

Gold prices increased on Wednesday after Federal Reserve Chairman Jerome Powell’s second day of testimony to US lawmakers, where he expressed cautious optimism. Addressing the House Financial Services Committee, Powell stated that current Fed policies were effectively bringing inflation closer to the Fed's 2.0% target. When questioned about future rate cuts, Powell mentioned that he wouldn’t wait for the Personal Consumption Expenditures (PCE) Price Index to fall below the target, as inflation has momentum and waiting too long could be detrimental.

This statement reinforced market expectations, with the CME FedWatch tool showing a 70% probability of a 0.25% rate cut in September, potentially lowering the Fed Funds rate to an upper bound of 5.25%. Despite investors seeking more specific details, Powell’s overall optimism about achieving a “soft landing” for the economy, where inflation decreases without significantly increasing unemployment, lifted market sentiment. However, the recent Nonfarm Payrolls report indicated a rise in the US Unemployment Rate to 4.1%, marking the third consecutive month of increase.

On Thursday, gold saw further gains due to new data indicating continued central bank gold purchases worldwide. Despite the People’s Bank of China halting gold purchases for two consecutive months, the Bank of India, the National Bank of Poland, and the Czech National Bank made significant acquisitions. Citibank analysts remain optimistic about central-bank demand, predicting a 5.8% increase to around 1,100 tons in 2024 due to potential trade wars and concerns over US fiscal policies. Citibank forecasts gold to reach $2,600 by the end of 2024, while TD Securities projects $2,475 in Q1 2025.